As web goes mobile, investors cool to internet start-ups

One of the most memorable scenes in The Social Network is when the pyjama-clad Mark Zuckerberg’s internet start-up is valued in the hundreds of millions before it even made a penny. Now that scene is looking even more like a fantasy for web entrepreneurs.

According to the New York Times:

“Until recently, investors had been all too eager to pour millions into any Web start-up with rapid growth, regardless of whether it made money or even had plans to do so down the road. But after Facebook’s rocky initial public offering and flameouts at Zynga and Groupon, venture capitalists are entering a picky phase.”

It’s also partly to do with the move towards mobile devices. Apps for smartphones and tablets are a lot harder to monetise. This is partly to do with there being less advertising space on a BlackBerry, but also the change of user behaviour with mobile web.

“Companies are having to retool their thinking, saying, ‘What is it that our customers are doing through the mobile channel that is quite distinct from what we are delivering them through our traditional Web channel?’” Charles S. Golvin, an analyst at Forrester Research, told the Times last year.

Investor anxiety

While some web start-ups rely entirely on Facebook and Twitter for customers, investors are becoming nervous of investing in e-commerce start-ups.

“Investors are getting smarter about the sources of traffic,” says Brian O’Malley of Battery Ventures. “Companies that rely heavily on Twitter and Facebook, or mobile, are having a tougher time.”

Social networks are a shaky ground to base a business. When Facebook changed the algorithm for its news feed last year, it meant businesses reached a much smaller audience with their posts. This essentially puts a lot of web start-ups which rely on Facebook at the whim of someone like Mark Zuckerberg.

photo credit: Wired Photostream via photopin cc